Senators appear divided on how to regulate crypto

Senators agree on the need for comprehensive crypto regulation, but they don’t appear to have a clear path to bipartisan legislation.

During a Senate banking hearing on Tuesday, Democrats expressed doubts about the value of crypto, while Republicans pushed for a more industry-friendly regulatory environment that encourages crypto firms to set up in the US

Partisan differences over how to regulate crypto reduce the chance that Congress will pass a comprehensive bill anytime soon, despite the high-profile collapse of FTX and many other crypto firms that were not subject to major consumer protection and financial transparency rules.

Sen. Sherrod Brown (D-Ohio), the committee’s chairman, said Congress should focus on legislation to protect consumers and ensure crypto doesn’t become integrated into the broader financial system, citing the recent failures.

“The lessons here are the product of hard-earned experience — experience born of real people losing real money and of shattered dreams,” Brown said.

Sen. Tim Scott (R.S.C.), the committee’s ranking member, said regulators are not clear on whether they have the authority to properly regulate cryptoassets, adding that Securities and Exchange Commission (SEC) Chairman Gary Gensler must testify before the committee soon.

He also accused the SEC of failing to implement clear guidelines that may have pushed firms like FTX to operate outside the US, a point often echoed by the crypto industry.

“The American people deserve to know why nothing was done before FTX’s collapse and how millions of dollars of Americans’ hard-earned money just disappeared into nothing,” Scott said.

Senators do not appear to be close to a comprehensive bill to regulate the crypto industry. The first bipartisan proposal to regulate crypto, introduced last year, was written with the help of disgraced FTX CEO Sam Bankman-Fried, dooming the odds.

Still, senators left open the possibility of smaller bills to fill regulatory gaps.

Sen. Thom Tillis (RN.C.) said he is pushing for a bill that would require crypto companies to show proof of reserves, noting that a comprehensive framework is “not going to happen.”

Sen. Elizabeth Warren (D-Mass.), a leading critic of the crypto industry, is working with Sen. Roger Marshall (R-Kan.) on a bill to subject cryptocurrencies to anti-money laundering rules.

“Big-time financial criminals love crypto,” Warren said Tuesday, noting that it is the currency of choice for gangs and ransom hackers in North Korea and Russia.

Crypto’s market cap is around $1 trillion, down from a peak of $3 trillion in November 2021.

The industry is coming under threat from state and federal regulators. Regulators in New York on Monday ordered blockchain firm Paxos to stop issuing a major so-called stablecoin pegged to the US dollar.